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Manufacturing industry’s health ≠ number of manufacturing jobs

We often hear that the American manufacturing industry is in major decline. In fact, the point often goes without saying these days, or at least without good data to back it up. That’s not to say that the number of manufacturing jobs in America hasn’t dropped off–that much is certain. But is the number of people employed in the manufacturing industry a good indication of that industry’s health?

The answer is no, and here’s why.

First: Consider the chart below from the Mercatus Center’s Veronique de Rugy:

As you can see, even though the number of manufacturing jobs has consistently fallen since around 1980, US manufacturing output is much higher these days than ever before (except for just prior to the 2008 financial crisis). As de Rugy explains, this means the average American manufacturer is more than three times more productive today than they were in 1975. This reveals true economic progress–producing more with less.

Second: In a recent paper, Clemson University’s Bruce Yandle (also affiliated with the Mercatus Center) explains a fact about manufacturing in America I hadn’t considered before. He writes,

“Information technology that drives the cost of contracting and managing is the big unknown in all this. As I have pointed out before, the US economy, especially the manufacturing economy, is disintegrating. Picture a large paper producer, for example. In decades past, that producer would have its own fleet of trucks, timber operation, steam-generated electricity, internal shop for major repairs, large engineering department, finance department, human resources, and distribution and warehousing operations, all as part of one paper-producing firm. Today, that same paper producer contracts out for transportation, logistics, engineering, energy, heavy maintenance, and for some finance and personnel services.

As contracting costs have fallen, the firm has disintegrated. Dramatic improvement in information technology has been the driver. The result? A smaller share of the workforce is employed in paper manufacturing, but more paper is being produced.”

He doesn’t cite data to back up this story (I’m not even sure if any relevant metrics exist), but it makes sense to me and jives with my own tangential experience with the manufacturing industry.

I work at a sales agency that sells for small manufacturers throughout Pennsylvania. Often, we will facilitate everything from product conceptualization to market research and advertising to shipping to final sale for our manufacturer client, leaving them to do only what they do best–manufacture product (don’t you just love the division of labor?). The result is that the number of people working for the manufacturing firm is trimmed down until only those people working on the assembly line, plus a few supervisors, remain employed at that firm. The few dozen employees at my workplace–accountants, marketers and salespeople who, decades ago, might have been employed directly by the manufacturer–are categorized under “business services.” This grows the “professional business services” labor force and a shrinks the “manufacturing” labor force despite no decrease in manufacturing output. If anything, outsourcing business services like shipping and sales–the cost of which is falls with advancements in information technology–only increases manufacturers’ efficiency.

I could say more about the state of manufacturing in the US. Suffice it to say, though, that the number of jobs in a particular industry is no indication of that industry’s overall health. Jobs are important, but that’s an entirely different discussion.